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Briefing highlights

  • Investors worry about Canadian housing
  • Global markets mixed
  • Video: Use of social media in the office

Investors fret

Royal Bank of Canada says it’s fielding an increasing number of inquiries from investors fretting over Canada’s housing markets.

This comes in the wake of warnings from several groups, including the Bank of Canada, Canada Mortgage and Housing Corp., the Conference Board of Canada, the Organization for Economic Co-operation and Development, and the International Monetary Fund, noted George Davis, the chief technical analyst at RBC Dominion Securities.

Mr. Davis took an indepth look at the housing markets, and the concerns that focus on the eye-popping price surge largely in Vancouver and Toronto, and what this all could mean for the Canadian dollar.

But he noted in his report that investors are worried, too.

“The Canadian housing market has become a hot topic on both a national and international level,” Mr. Davis said.

“To wit, we have been receiving an increased number of questions from investors about the underlying dynamics of the housing boom, along with key concerns and their potential implications for markets.”

Given the surge in national home prices - they’ve climbed 14 per cent in one year, 27 per cent in three years and 35 per cent in five years - the focus is on the pace of appreciation and, thus, the health of Canadian housing.

“The availability of cheap credit has stoked concerns that the economy may now be susceptible to a housing market shock as consumer leverage reaches as historical high,” Mr. Davis said.

That doesn’t mean he’s suggesting a meltdown, but rather pointing to investor angst.

As for the loonie, Mr. Davis noted the various policy measures to cool down the housing market, at both the federal and provincial levels, the latest being B.C.’s 15-per-cent tax on foreign buyers of Vancouver area homes.

“While various levels of government and regulators have heeded mounting warnings from the Bank of Canada and gradually implemented a number of macroprudential measures to combat rapidly rising prices, the jury is still out in terms of their overall success,” Mr. Davis said.

“This will have medium-term ramifications for CAD with the ultimate success of more recent forceful measures presenting some downside risks for the currency,” he added, referring to the loonie by its symbol.

“On the other hand, if said measures fail to moderate the price appreciation, the net result could be more bullish for CAD to the extent that the market views interest rate increases as the remedy. This is clearly a path that the BoC does not want to travel down.”

Inflation slows

A break at the gas pump is driving inflation lower.

Consumer prices rose 1.3 per cent in July from a year earlier, marking a slower rate of inflation in Canada than June’s 1.5 per cent.

That was largely driven by a drop in the cost of gasoline, which fell 5.6 per cent in July from June, and 14 per cent from a year earlier, according to a fresh reading from Statistics Canada.

And in a surprise to some observers, food prices rose by 1.6 per cent on the year, a faster pace than June’s 1.3 per cent.

Meat prices rose, as did those for fresh fruit and vegetables, though at a slower pace than in June.

“Food inflation, which was the big story at the start of the year, has calmed nicely,” said BMO Nesbitt Burns senior economist Benjamin Reitzes.

And here’s a tidbit from the report: The cost of fresh and frozen fish chalked up its fastest rise in more than two years.

Having said that, grocery prices fell

Also notable was the slow pace of price hikes in Alberta, where annual inflation came in at just 0.8 per cent, the slowest rate since May of 2015.

Statistics Canada also reported that retail sales slipped 0.1 per cent in June, driven lower by food and beverage outlets.

Video: Use of social media in the office

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